NEWS ANALYSIS
Oil prices have been mired in a 2 1/2-year slump.
Crude last reached $100 per barrel in 2014. After hitting a rock bottom of $27 in early 2016, global oil prices have recovered but cannot seem to break out of the range of $50 per barrel. This stagnation has led some energy companies to tighten their belts, hoping to extend their business until the price recovers.
What are the potential catalysts for an oil recovery? And what lies ahead for the industry? The answer depends on complex variables such as oil production and demand, geopolitical upheaval, and how companies balance cost-cutting versus long-term investments.
Royal Dutch Shell Plc. CEO Ben van Beurden kicked off industrywide soul-searching on July 27 with a comment about oil prices becoming “lower forever.”
“Lower forever, yeah, that’s the mindset,” van Beurden said, during a quarterly conference call with analysts. “We do not want to have the mindset that higher oil prices are around the corner to help us out.”
While the Shell CEO mentioned this as a mindset to embrace—not as a fact that oil prices would never rise—his words nevertheless spooked the entire industry.
What van Beurden stated was something many in the industry suspected, but were afraid to say. The prevailing assumption was that peak oil demand would arrive at some point in the future—the International Energy Agency believes around 2040—and after that, demand and prices would gradually fall, coinciding with the advent of alternative or renewable energy sources.
